Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which of the following best describes the primary difference between simple interest and compound interest?

Simple interest decreases over time, while compound interest remains constant.

Simple interest applies only to loans, while compound interest applies only to investments.

Simple interest is calculated only on the original principal, while compound interest is calculated on the principal plus any accumulated interest.

Simple interest is calculated annually, while compound interest is calculated monthly.

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Verified step by step guidance

Step 1: Begin by understanding the concept of simple interest. Simple interest is calculated only on the original principal amount, meaning the interest does not compound or accumulate over time.

Step 2: Understand the concept of compound interest. Compound interest is calculated on the principal amount plus any accumulated interest from previous periods, meaning the interest compounds over time.

Step 3: Compare the two concepts. The primary difference lies in how the interest is calculated: simple interest does not take into account accumulated interest, while compound interest does.

Step 4: Eliminate incorrect options based on the definitions. For example, simple interest does not decrease over time, nor is it limited to loans. Similarly, compound interest is not restricted to investments, and the frequency of calculation (annually or monthly) is not the defining difference.

Step 5: Identify the correct answer: 'Simple interest is calculated only on the original principal, while compound interest is calculated on the principal plus any accumulated interest.' This aligns with the definitions provided.